A falling knife describes an asset undergoing a sharp price decline that may still have further to run. “Catching a falling knife” means buying during that decline in the hope of entering near the bottom. The metaphor emphasizes the danger of acting before the selling has subsided, rather than defining a particular percentage drop.
Why a lower price can mislead
A token falling from 100 to 50 has lost 50% of its value. If it then falls to 25, a buyer at 50 also loses 50%, before fees; the total decline from 100 is 75%. A large past loss does not place a floor under the next one.
The previous high is only a historical reference. Deteriorating demand, a security incident, or forced liquidations can change the reasons people were willing to pay that price.
A warning, not a timing signal
The term often appears in discussions of buying dips. Some declines reverse, while others continue or end in lasting impairment. A brief rebound can occur within a continuing downtrend. Neither the label nor a single recovery candle establishes the bottom or guarantees that waiting will produce a better entry.